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Electronic Arts Lowers Forecast and Cuts Its Work Force

SAN FRANCISCO — Electronic Arts, the video game maker, said on Thursday that it was lowering its profit forecast, cutting 6 percent of its work force and moving more jobs overseas, signs that it is struggling to complete a financial turnaround.

Electronic Arts, best known for its top-selling Madden football franchise and other sports games, said that it was seeing some indications of a slowdown in retail sales. But it said it was too soon to tell if the ailing and volatile economy would hinder what is otherwise expected to be a strong holiday season for the video game industry.

In an earnings report, Electronic Arts said it lost 6 cents a share in the second quarter, which was in line with analysts’ consensus. It had a loss of $310 million, bigger than the $195 million it reported a year earlier.

The company projected that its year-end sales would be between $5 billion and $5.3 billion, which is in line with its earlier estimates. But it said that its earnings would be between $1 and $1.40 a share, down from $1.30 to $1.70.

In after-hours trading, investors punished Electronic Arts, sending its share price down more than 14 percent, to $23.75.

Analysts said investors were reacting to the reduced forecast and were frustrated that Electronic Arts had not been able to regain the profit margins of earlier years.

“Investors have been told for the last three to four years to be patient and that E.A.’s investments will pay off, and today is another data point that they’re not,” said Evan Wilson, an analyst with Pacific Crest Securities. “Now that we’re entering a choppy economic time, they’re going to have to wait a lot longer.”

For its part, Electronic Arts said the cost-cutting moves were part of a continuing effort to improve profitability and were not related to the economic downturn.

“Irrespective of economic conditions, we believe it is important to maintain an efficient cost structure,” said Eric Brown, the company’s chief financial officer.

The company is also seeking to build a portfolio of new original games instead of relying on long-running franchises. In its second quarter, Electronic Arts said it made strides in this direction with Spore, a game inspired by the principles of evolution, which sold 2 million copies in three weeks.

Mr. Brown and other company executives said economic signs were mixed for the video game industry. On one hand, executives said, retailers were reporting a drop in demand and foot traffic, but they also are setting aside additional shelf space for video games, perhaps because they sense consumers will favor them over other products, Electronic Arts said.

Mr. Brown said that he still expected the industry to grow 20 percent this year over last but that the economy was in a highly unusual state of uncertainty.

“In the past, the video game business has proven to be very recession-resilient,” he said. But “we are in an economic state that is different than any of us have experienced in our memories, so we don’t have a direct point of comparison.”

As of June 30, Electronic Arts had 9,400 employees worldwide. It would not disclose the current number.

The company now has 13 percent of its work force in relatively low-cost regions, like Eastern Europe and India. It plans to increase that share to 19 percent, and to reduce the share that is based in higher-cost areas like North America.

The company said it was reducing its projections for two main reasons: It is delaying the release of a new game based on the Harry Potter movies into its next fiscal year, and the precipitous rise in the dollar has cut into profits coming from overseas.

But several analysts said those explanations didn’t address a more fundamental problem. They said that when sales forecasts stay the same but profit projections fall, it means that the company is being less efficient.

Electronic Arts has been struggling with that problem; its operating margins were 27 percent in 2004, but dropped consistently to 8 percent in 2007 and 2008, said Colin Sebastian, an analyst with Lazard Capital Markets.

“They’re not achieving the operating efficiency in their business that they hoped to,” Mr. Sebastian said.

A version of this article appears in print on , on page B2 of the New York edition with the headline: Electronic Arts Lowers Forecast and Cuts Its Work Force. Order Reprints|Today's Paper|Subscribe